This section deals with the companies act
requirements on:
requirements on:
·
The
accounting reference date,
The
accounting reference date,
·
The form
and content of company accounts,
The form
and content of company accounts,
·
The
procedure on the completion of the accounts,
The
procedure on the completion of the accounts,
·
Modified
accounts, and
Modified
accounts, and
·
The
publication of full and abridged accounts.
The
publication of full and abridged accounts.
An auditor must know these rules because:
·
The
majority of audits are company audits
The
majority of audits are company audits
·
The
principal objective of the audit is to report on the truth and fairness of the
financial statements.
The
principal objective of the audit is to report on the truth and fairness of the
financial statements.
·
Section
495 requires the auditors to state in their report whether, in their opinion,
the accounts have been properly prepare in accordance` with the act.
Section
495 requires the auditors to state in their report whether, in their opinion,
the accounts have been properly prepare in accordance` with the act.
·
Examines
in auditing require this knowledge in students.
Examines
in auditing require this knowledge in students.
Some of this you will know from your studies into
financial accounting and financial reporting, nevertheless we include them here
because it is a part of the auditors’ role to ensure that all the various
disclosure requirements for a set of financial statements e.t.c. but knowledge
of the fundamental accounting principles is vital to sound understanding of
audit work.
financial accounting and financial reporting, nevertheless we include them here
because it is a part of the auditors’ role to ensure that all the various
disclosure requirements for a set of financial statements e.t.c. but knowledge
of the fundamental accounting principles is vital to sound understanding of
audit work.
Remember also that the responsibility for preparing
financial statements, laying them before the company (i.e. presenting them to
shareholders) and delivering them to company’s house lies wholly with the
directors.
financial statements, laying them before the company (i.e. presenting them to
shareholders) and delivering them to company’s house lies wholly with the
directors.
Accounting
reference date
reference date
Every company has to have a period end and the
profit and account is for the period ending on that date and the balance sheet
is made up as at date and the balance sheet is made up as at that date. A
company’s period end is known as the accounting reference date and the
financial statements are made up for the accounting reference periods ending on
that date.
profit and account is for the period ending on that date and the balance sheet
is made up as at date and the balance sheet is made up as at that date. A
company’s period end is known as the accounting reference date and the
financial statements are made up for the accounting reference periods ending on
that date.
Sections 390 to 392 give the law on this matter in
unbelievable length. In short:
unbelievable length. In short:
·
The
company can give notice to the registrar of its chosen date.
The
company can give notice to the registrar of its chosen date.
·
If this
is not then the accounting reference date is either:
If this
is not then the accounting reference date is either:
·
The last
day of the month in which the anniversary of its incorporation falls or,
The last
day of the month in which the anniversary of its incorporation falls or,
·
If the
company was formed before 1 April 1990, it is automatically 31 March.
If the
company was formed before 1 April 1990, it is automatically 31 March.
The date can be changed by going through the
prescribed procedures.
prescribed procedures.
The company must prepare accounts for each and
every accounting reference period.
every accounting reference period.
The actual date used may be up to seven days either
side of the accounting reference date.
side of the accounting reference date.
Financial
statements required
statements required
The following financial statements must be
prepared:
prepared:
·
A profit
and loss account for each accounting reference period-(s 396).
A profit
and loss account for each accounting reference period-(s 396).
·
A balance
sheet as at the accounting reference date –(s 396)
A balance
sheet as at the accounting reference date –(s 396)
·
If the
company is a holding company then group accounts must also be prepared-(s 399).
It is permissible and is the common practice not to publish the company’s own
profit and loss account but to publish a consolidated profit and loss account
which shows how much of the consolidated profit or loss for the financial year
is dealt with in the company’s individual accounts-(s 408).
If the
company is a holding company then group accounts must also be prepared-(s 399).
It is permissible and is the common practice not to publish the company’s own
profit and loss account but to publish a consolidated profit and loss account
which shows how much of the consolidated profit or loss for the financial year
is dealt with in the company’s individual accounts-(s 408).
·
Notes
attached to and forming part of the accounts:
Notes
attached to and forming part of the accounts:
·
Giving
the detailed information required by the act and various accounting standards
without cluttering the financial statements.
Giving
the detailed information required by the act and various accounting standards
without cluttering the financial statements.
·
Giving
certain required additional information-(ss 409-413).
Giving
certain required additional information-(ss 409-413).
·
A
director’s report-(ss 415-418).
A
director’s report-(ss 415-418).
·
A
director’s remuneration report-(s 420).
A
director’s remuneration report-(s 420).
This is the minimum required by law. Most public
companies, particularly those listed on the stock exchange; include a lot more
in their annual accounts. These may take the form of a chairman’s statement, a
review of operations, a five year summary of accounts etch.
companies, particularly those listed on the stock exchange; include a lot more
in their annual accounts. These may take the form of a chairman’s statement, a
review of operations, a five year summary of accounts etch.
The auditors are not responsible for auditing these
as they are not part of the statutory
minimum accounts but, as we will see in a later chapter, the auditors must make
sure that these extraneous pages are consistent with the statutory accounts.
as they are not part of the statutory
minimum accounts but, as we will see in a later chapter, the auditors must make
sure that these extraneous pages are consistent with the statutory accounts.
Form
of company accounts
of company accounts
The financial statements must follow the formats
specified by the act. In addition to the companies act requirements there are
international financial reporting standards (IFRS) and generally accepted
accounting principles (GAAP), which contain the various rules relating to
disclosure and reporting in company accounts.
specified by the act. In addition to the companies act requirements there are
international financial reporting standards (IFRS) and generally accepted
accounting principles (GAAP), which contain the various rules relating to
disclosure and reporting in company accounts.
Section 395 allows a company to prepare accounts
either in accordance with the companies act or in accordance with international
accounting standards (IAS individual accounts).
either in accordance with the companies act or in accordance with international
accounting standards (IAS individual accounts).
Auditors must be familiar with the principles which
lie behind the preparation of, and disclosure required in, company accounts.
lie behind the preparation of, and disclosure required in, company accounts.
In practice, checklists will be used to ensure that
nothing vital has been missed. However, many examination bodies set questions
which require knowledge of accounting disclosures so students must have in mind
their studies in financial accounting when answering auditing questions.
nothing vital has been missed. However, many examination bodies set questions
which require knowledge of accounting disclosures so students must have in mind
their studies in financial accounting when answering auditing questions.
